Update: This article was updated to include more information on solutions referenced in the Greater Houston Partnership report as well as a 2017 report from the financial advisement company PFM.

A new report outlining financial issues facing the city of Houston has city officials discussing potential budget cuts in the years to come, but Houston's budget chief is also calling out what he said are "factual errors" in the report that raise questions about its conclusions.

The setup

The report, released in late October, was commissioned by the Greater Houston Partnership and its Houston Budget Task Force, which sought the expertise of Rice University professor John Diamond in analyzing the city's financial situation. The GHP is an economic development group that serves around 900 member companies in the 12-county Greater Houston area.

In the report, Diamond highlights what he calls a "chronic structural budget deficit." Between 2017 and 2023, the city's recurring expenditures have exceeded its recurring revenues by $100 million to $200 million each year, and the city has balanced budgets with one-time revenue sources, Diamond wrote.

"These budgetary sleights of hand have resulted in a balanced budget on paper, but they are not sustainable, and they have contributed to an ever-widening operating deficit," Diamond wrote. "All of this points to a growing structural budget imbalance that poses challenges to Houston’s future growth and quality of life."

A look back

In a previous interview with Community Impact, Houston's Controller Chris Brown raised similar concerns. With a mayoral election coming up Nov. 7, Houston's next mayor will have roughly six months before significant budget decisions will have to be made, potentially including staffing cuts and furloughs, Brown predicted.

Addressing the Houston City Council at its Nov. 1 meeting, Brown again brought up the new GHP report and the city's financial challenges, emphasizing that they cannot be solved with one-time revenue sources.

"We must reduce recurring expenditures or increase recurring revenue," Brown said at the meeting. "The key is recurring—it’s that simple."

A closer look

Houston's Finance Director Will Jones agreed the city does have a structurally imbalanced budget, adding that his office has never said anything to the contrary. But Jones also called out what he said were factual inaccuracies in the GHP's report that he said "over-exaggerate" the situation and are misleading to readers. The GHP, Jones said, did not reach out to his office at any point while creating the report.

"You cannot skip over facts to get to [the] point, facts that are extremely misleading," Jones said at the meeting. "There’s never been a time that we haven’t stated that we have a structural imbalance."

The details

The city's budget office also sent a memo to Houston Mayor Sylvester Turner on Oct. 24 detailing what they identified as factual errors and misleading information in the report, including:
  • Referencing the city's unrestricted net position—a deficit of $6.3 billion—alongside its total net position—a surplus of $5.9 billion. Jones wrote it was "misleading" to frame the information in this way, instead of just using the total net position. The unrestricted deficit is part of the calculation that leads to the city's net position and is often the result of long-term liabilities, whereas the total net position is a more useful number in analyzing a city's financial situation, Jones wrote.
  • Claims in the GHP report regarding the city's pension liability, which Jones said were not calculated correctly and downplay gains from pension reform implemented during Turner's administration. The savings from pension reform—calculated by Jones' office at $1.7 billion—were incorrectly calculated to be $166.1 million in the GHP-commissioned report because of inaccurate assumptions about city data, Jones said.
At the Nov. 1 council meeting, Vice Mayor Pro Tem Dave Martin said the GHP-commissioned report also referenced a projected decrease of 11% in city sales tax revenue for the 2023-24 fiscal year, a projection that has since been revised to a drop of 0.2% at worst and an increase of 0.9% at best.

What they're saying

In a statement in the wake of Jones' memo, GHP President and CEO Bob Harvey said the group is reviewing the memo and "remain[s] committed to correcting any factual errors in our whitepaper.”

At the Nov. 1 council meeting, Brown said the factual errors in the paper do not detract from the point the author was making.

“We are arguing about the speed at which the car is heading towards a cliff. The issue is, we are heading towards a cliff,” Brown said.

What's next

Houston council members discussed the city's financial position at the Nov. 1 meeting and what it could mean moving forward. The GHP report did not make specific recommendations for what budget cuts the city should consider, but referenced solutions from a 2017 report as well as "reductions in expenditures and targeted fee increases."

Addressing the budget issues the city faced around 2011 and 2012 resulted in layoffs, closing parks and closing libraries, Jones said.

When asked at the meeting, Brown offered $200 million as a round number to shoot for in budget cuts that would help balance the budget. The city was about $8 million over budget for the 2023-24 fiscal year, which included around $160 million in one-time federal funding through the American Rescue Plan Act. Finding ways to cut the budget by smaller amounts each year would be preferable to making a 10% budget cut all at once, Brown said.

Turner has also referenced the city's fund balance, projected to be more than $400 million by the end of the 2023-24 fiscal year. Although Turner was not present at the Nov. 1 meeting, Martin said Turner planned to comment on the GHP report during the Nov. 8 Houston City Council meeting.